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What Is The Meaning,function,and Importance Of Financial Management?

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Neha Agrawal Profile
Neha Agrawal answered
Definition:
  • Financial management is the management of monetary resources. It involves planning accurately, directing the monetary resources at correct time and controlling the financial activities of a firm. Financial management is very important for a business to ensure it can run smoothly. Finance is an aspect which, if neglected, can lead to severe losses and closure of a firm.

The Functions of Financial Management are as follows:

  • Estimation of capital requirement: The main function of a finance manager is to estimate the costs of the firm. They must be capable to estimate the expected profits and future requirements of finance with regards to new policies, etc. This leads to an increase in the earning capacity of the firm.
  • Determination of capital composition: The finance manager has to determine the ratio of capital involved in various projects. For example, the amount to be invested in short term projects and long term projects, what is the amount required to be kept for sundry expenses, staff salary, etc. If the money is short they must find out ways to increase the equity from outside resources.
  • Investment decision: The finance manager is a key decision maker in terms of investment making. They should always be aware of all the monetary resources available with the business which can help increase the company's profit margins by investing it.
  • Profit management: In case of surplus profit, the finance manager can declare either dividends or issue bonus shares.
The importance of financial management can be stressed with the following points:

  • Good reputation of the company: Proper financial management brings name, fame and good reputation to the company.
  • Diversification: Funds can be diversified to various areas with proper management.
  • Growth: Financial management leads to growth of the company.
  • Survival: In this competitive time, financial management can help the company survive in the market.
Michelle Profile
Michelle answered
Profit maximization is probably the most commonly sited business goal.  The financial manager in a corporation makes decisions for the stockholders of the firm.  Good financial decisions increase the market value of the owners' equity and poor financial decision decrease it.
James Sharpen Profile
James Sharpen answered
If you don't have management you won't be able save up for stuff and you might start to wast money!

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